The last few years have been really tough on department stores. Sears Holdings (NASDAQ: SHLD) seems to be in a state of total collapse, Macy’s (NYSE: M) is closing stores and JC Penney’s (NYSE: JCP) stock is now trading at less than $10 a share.

Once some of the icons of American retail, department stores have been devastated by a perfect storm of declining middle-class income, growing online commerce and aggressive competition from other retailers such as Walmart Stores Inc. (NYSE: WMT), Costco Wholesale (NASDAQ: COST), Amazon.com (NASDAQ: AMZN), Target Corp (NYSE: TGT) and even Kroger (NYSE: KR). These retailers have made aggressive moves into department stores’ business; for example, Target and Amazon are aggressive marketers of fashion clothing, and Walmart, Costco and Kroger now offer many of the same products as department stores plus gas and groceries in their superstores.

In light of this situation, many people will be wondering if traditional department stores can still make money. After all, these retailers have high overheads and high location costs and are often saddled with old fashioned mall-based locations. They also have to contend with a new generation of customers that seem to value convenience, speed and low prices over traditional customer service.

Is Department Store Revenue Growing or Not?

To answer this question, I went over to YCharts and took a close look at the financial numbers. What I saw was not very pretty. For example, JC Penney reported a net income of -$522 million and a free cash flow of -$53 million on July 31, 2015. That certainly calls Penney’s revenue growth rate of 2.72% into question.

Interestingly enough, the charts show that Penney’s revenue has been fairly consistent for the last two years after a steep fall in 2013. Penney’s reported a TTM revenue of $12.31 billion in July 2013 that grew to $12.16 billion in July 2014 and $12.36 billion in July 2015. It looks as if Penney’s is simply treading water, generating a small amount of revenue and barely staying afloat.

That would indicate that Penney’s will need to make some major changes just to stay in business, such as greatly reducing its footprint by closing stores or reducing the inventory it sells, perhaps by getting out of lines like small appliances or linens. Such moves might reduce costs, but they could also reduce future revenue and drive away customers.

Are Department Stores Losing Money?

What’s truly bothersome is that Penney’s is not the only department store chain that reported a negative free cash flow. The profitable Dillard’s (NYSE: DDS), which reported a net income of $325.19 million on July 31, 2015, also reported a negative free cash flow of -$74.21 million, which indicates revenue is not turning into profit. Like Penney’s, Dillard’s reported a modest revenue growth rate of 2.51%; this seems to indicate that revenue growth is not covering expenses.

Something else that is bothersome here is that Dillard’s, which relies on sales to the middle class, reported a negative free cash flow, while Kohl’s (NYSE: KSS), which is more of a discounter, reported a free cash flow. Kohl’s reported a net income of $768 million and a free cash flow of $50 million on July 31, 2015. Yet it also reported a revenue growth rate of .59%, which also looks like treading water to me.

Okay, so what about stores that cater to the higher end of the market or at least the upper middle class? Those were a mixed bag. Macy’s was actually doing quite well; it reported a net income of $1.42 billion but a free cash flow of $77 million. That, of course, indicates that revenues are not covering expenses at Macy’s.

Macy’s is also struggling with declining sales. It reported that its revenue was falling at a rate of -2.6% on July 31, 2015. That would indicate shoppers are avoiding Macy’s. It also indicates that Macy’s is losing customers. My guess is that Amazon and its Zappos subsidiary are hitting Macy’s hard by selling fashion items and other high end goods at lower prices.

The Incredible Shrinking Middle Cass

Part of the reason why retailers such as Penney’s, Sears, Macy’s and Dillard’s are having a hard time maintaining revenue growth is that they have fewer customers. The percentage of middle class families in the population of every state of the Union shrank between 2000 and 2013, research from the Pew Charitable Trust indicates.

The percentage of middle income households actually dropped by 5% in two states: Wisconsin and Ohio. Some department store operators, including Macy’s and Sears, are heavily exposed in those states. The same study discovered that the average income in two of America’s populous states, California and New York, actually fell between 2000 and 2013. That is also bad news for department stores because both of those states are hotbeds of traditional retail.

The average household income in California fell from $65,445 in 2000 to $60,190 in 2013, indicating that the average family lost $5,000 in spending power. That shows why so many people are staying out of the department store; they can no longer afford the prices. If these trends continue, department stores face a shrinking customer base that has less money to spend.

Does Nordstrom Make Money?

Now what about the one department store success story we occasionally hear about—Nordstrom (NYSE: JWN), the growing chain that caters to the growing affluent classes? What’s interesting is that Nordstrom’s numbers were just as mixed as Macy’s were.

Nordstrom is certainly growing; it reported a revenue growth of 9.11% on July 31, 2015, which was tremendous. The fancy department store also reported that its revenue increased by $1.18 billion over the past year, rising from $12.92 billion in July 2014 to $14.1 billion in July 2015. That gave Nordstrom a net income of $736 million, but it also reported a free cash flow of -$55 million.

That too indicates Nordstrom is having a harder time covering its expenses. It also shows us that Nordstrom’s momentum is not generating enough cash. One has to wonder if this chain’s growth is being driven by expansion or by the decline of traditional rivals.

What is interesting is that the bottom-feeding discounter Ross Stores (NASDAQ: ROST) also reported considerable revenue growth. Ross reported a revenue growth rate of 8.75% on July 31, 2015. That caused Ross’s TTM revenue to increase by around $990 million, rising from $10.55 billion in July 2014 to $11.54 billion in July 2015. Ross was also fairly healthy financially; it reported a net income of $982.09 million and a free cash flow of $90.2 million on July 31, 2015.

Is the End of Department Stores Coming?

My guess is that Ross’s growth, like that of Nordstrom, is being driven by the decline of the middle class and growing income inequality. Ross sells to the former middle class families that can no longer afford to shop at the department stores. Nordstrom caters to the nearly affluent that hate the idea of shopping at Sears.

I also suspect that much of the growth in this sector is driven by the decline or collapse of historic retailers like Sears and JC Penney. The customer base is not growing; instead, it is simply moving from store to store.

Investors need to stay away from department stores; this is a sector in decline. My prediction is that we are going to see the complete collapse and possibly disappearance of a number of historic department store chains over the next few years as customers vanish and retail business moves elsewhere.